Penny saved is worth more than a penny earned

We’ve all heard the adage – a penny saved is a penny earned. While it is normally attributed to Ben Franklin, it turns out that the real author is likely 17th century Welsh poet George Herbert.

The important thing, however, is that the adage is flawed. As Andrew Tobias explains in his excellent personal finance book “The Only Investment Guide You’ll Ever Need,” these were written at a time before taxes were institutionalized. Now, a penny saved is worth a lot more than a penny earned because you’ll need to earn much more than one penny to ensure you save as much after taxes.

After some financial mismanagement in my undergrad period (that had knock on effects until 2 years after I graduated), I worked hard to be very diligent about spending a lot less than what I earned. It has only been 6 years since but it has enabled me to pay my way through business school without any debt. And, my learning from that is that saving is just part of a conscious lifestyle where you are mindful about every expense. A couple of ways I improve consciousness is by taking note of all expenses manually into an app called “Envelopes” – I still don’t use Mint as it is all too automatic for my taste. Every weekend, I transfer these expenses to a Google Doc that tracks my expenses – again, manually. I wrote about this process back in 2011 and it is one that has worked well for me. Given how much convenience credit cards and frictionless payments have brought to my life, I do go out of my way to ensure there is some friction at least when I’m accounting it.

All this doesn’t mean all saving and no fun. There are three areas I’ve found to be wonderful uses of money – spending it on experiences versus things, spending it on people you love and spending it on people you don’t know. I’ve come to realize that how you define experiences is a personal thing. For some people, driving every day is an experience. It matters a lot which car they drive. For us, we realize that living in a nice home is an experience because we spend a lot of time on weekends at home. Others would rather allocate that money to activities over the weekend. It matters that we allocate some of our money for “guilt free spending.” But, that can only come after we make sure we’ve saved.

Many of these lessons on personal finance are in an infographic/”learnographic” a friend and I created a couple of years back on personal finance.

Personal finance thoughts aside, simple insights like this one repeatedly demonstrate the power of books to change our lives. In the four weeks since I’ve read the book, I find myself repeatedly remembering the fact that dollars saved are worth more than dollars earned as I make spending decisions.

I like the distinction between frugal and cheap. I often explain that to my friends who call me cheap. Much to my wife’s dismay (kidding, kinda), I force us to be very mindful about our expenses. We have a multi-category Excel sheet.

She was less dismayed when I’d saved enough cash for a down payment on a nice home in a nice area near the cities’ inner-loop. Ha! (Buying our time back w/ less commute that most people in our city.)

I also agree with the ‘wonderful uses’ of money you’ve outlined. Michael Norton’s research on “How to Buy Happiness” supports your point-of-view.

Lastly, a penny saved is worth more than a penny earned, but the most impactful way to change your life is to earn more, *not* to pinch pennies. A lot of people get hung up on $4 Starbucks and other trivial things, but don’t negotiate their salary, the APR on their big purchases, etc.

Be mindful of your expenses, yes. A lot of little ones can add up, but we’d be better served focusing on the big wins and trying to earn more via wise investments, a side hustle, a raise, etc.

Btw – I’ve been meaning to read your happiness project post in full but have been caught amidst relocation. A minor nit I noticed in the first month’s summary is Stumbling on Happiness by Dan *Gilbert. Thank you so much for the summary!